RBA Cuts Rates:
In a widely expected move, the RBA yesterday cut rates to a record low 2.00%. What was slightly less expected was the price action following the release (and for once it wasn’t dodgy front runners!).
The Aussie was smashed on the headline of the cut but as the statement was digested, buyers swooped and pushed the currency to new highs. The buying was due to the statement being interpreted as more hawkish than expected, not mentioning the need for additional cuts and possibly signalling the end of the RBA’s easing cycle.
It does seem a little strange that Stevens would talk about the need for further reduction in the exchange rate while removing the easing bias when maybe he didn’t have to word it the way he did. But it does show that the RBA believes that the Fed will look to raise rates sooner rather than later and do some of the heavy lifting for them.
Speaking of the US, last night’s missed Trade Balance number will now see the first quarter GDP number revised lower. With a rebound expected in the 2nd quarter and a better ISM non-manufacturing print, rate hike expectations didn’t change too much. Something that Stevens will be relieved to hear.
Even though on the surface it’s hard to grasp the concept of the Aussie rallying on a rate cut, something to keep in mind is that even in the midst of this rally, price is actually still well over 100 pips off where it was when the actual cut was called… last Thursday in the newspaper.
Anywayyy! 80c is the in play level at the moment.
1.5000 is the obvious key level on this GBP/USD daily chart as we head into the UK election tomorrow. USD weakness and a raft of hawkish sentiment from the BoE over the last few weeks has given the Pound a lift but the risks of a hung Parliament and the uncertainty that goes along with it will come back into focus in the coming days.
There is real event risk to the downside with a history of uncertain elections causing the Pound to drop hundreds of pips as election fallout settles. If you are interested in building a short position and playing the election uncertainty, a word of warning. We all remember the Scottish referendum where the Pound ripped on the rumour then was sold off after the fact. I’m very wary of something similar in the opposite direction here.
The 1.5000 level as well as the broken channel is there to help manage your risk. Watch for price to tuck back below 1.5000 then possibly give an opportunity to short on a rejected re-test.
On the Calendar Today:
Japan are off again for Constitution Day but Australian retail sales keeps us interested during Asia.
Plenty on the calendar tonight as we head into the US session featuring the ADP number as we move towards NFP on Friday.
JPY Bank Holiday
AUD Retail Sales
CNY HSBC Services PMI
GBP Services PMI
USD ADP Non-Farm Employment Change
USD Prelim Unit Labor Costs
USD Fed Chair Yellen Speaks
CAD Ivey PMI
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